Getting a Mortgage With Your Parents
It’s entirely possible to get a mortgage in the current Okanagan real estate market as a young single person. The availability of first time buyer incentive programs along with favorable mortgage rates make entry viable for someone who wants to start building their equity. That said, you’re interested in tapping into another valuable resource – your folks. While there are a number of benefits to getting a mortgage with your parents, you’re on the fence about whether or not you should partner with them to invest in a home. Below is a breakdown of why it may be a wise decision that supports your goals for today, and tomorrow.
5 Reasons Why Getting a Mortgage With Your Parents May Be a Very Wise Decision
I. Their Equity and Credit Qualifies You for Better Mortgage Terms
Given that you look at your parents as a valuable resource for getting a mortgage, the assumption is that they have been homeowners for quite some time. They made their mortgage payments on the family home and paid it off. This fact is backed by decades of history in establishing a great credit rating which will look great on the loan application. In addition, equity they have in their current property (or properties) will also provide banks or other lending institutions with confidence that their investment is secure. When you partner with a such a dynamic duo you become less of a calculated risk to lenders. As a result, you will be offered better terms and be able to call the shots on which type of mortgage you should get. Pretty much anything that lowers your longterm cost of the mortgage is a good thing.
II. Splitting the Downpayment and Mortgage Payments
This is an obvious, logical, and possibly the biggest benefit. If you get your parents to “buy in ” on an investment on a new home (and you) you have a partner to share the downpayment and/or monthly mortgage payments with. How it’s done is up to the you and them. In many scenarios such as this, the parents provide all or the bulk of the downpayment and the adult child takes over from there. They may also provide backup should there be financially lean months. Or, you decide to split the whole enchilada right down the middle, which makes for a more equitable partnership. This part of the decision really comes down to your relationship and respective financial situations.
III. Helping Ease the Stress Test of Your First Mortgage
We’re not talking about the Government of Canada’s mortgage stress test. Although, as per benefit #1 above, partnering with your parents on a home will absolutely help you pass and qualify for a mortgage. Instead, we’re referencing the literal form of stress. Buying a home is the biggest financial decision you will ever make and as a young single professional (or even a young couple) it can be anxiety inducing. When the stress of buying a home on your own becomes too much to bear, you may make poor decisions regarding your budget, terms, and you may end up buying a property that is not right for you. By having seasoned veterans (your folks) involved you significantly reduce your anxiety. As a result, you will be able to make a calmer, more calculated and informed decision, together.
IV. Flexibility for Flexible Times
What will you do with your collective real estate investment? In most cases, the young adult takes up residence. This is a logical option in the beginning, but there are other great possibilities. For instance, you may decide to leverage the property as a rental to generate immediate revenue. This is a lucrative opportunity, not only on the longterm rental market, but the short term rental market too. In a resort community such as Penticton BC, many homeowners are using Airbnb to pay off their mortgage. Your parents will certainly appreciate another means of income, especially if they are currently (or soon to be) enjoying their retirement years. And in the future, when you’ve established your own little empire and started a family of your own, the shared investment could possibly be used as a retirement property for your parents. Or, it can simply be enjoyed as a vacation property for the entire ohana! The future flexibility of this real estate investment is a massive advantage.
V. Building Generational Wealth Together
By making a real estate investment with your parents you collectively take a major step towards building generational wealth. This is the key to creating and maintaining a family name that is synonymous with success. By building and keeping equity in the family, each generation will be able to piggyback from one generation to the next. What you do today will establish a working business model that your children and your children’s children can carry on. Admittedly we’re taking some dramatic license with our longterm foreshadowing, but this is exactly how generational wealth has been created since the caveman days.
Building real estate wealth by leveraging your parents’ credit rating, equity, and experience can be a great decision. However, we highly encourage you to connect to a mortgage broker before you do. This spans beyond the traditional benefits (lower borrowing rates, etc.) of working with a mortgage broker. A mortgage broker can help you sort out the best way to create a more formal agreement with your parents, to protect the both of you from complications that may arise when investing in real estate with kin. Carloni Mortgage Brokers has direct experience in home purchases shared between family members , and will help you manage the process so that the interests of all involved are protected. Are you interested in getting a mortgage with your parents in the BC Southern Interior? Call our Penticon office today at 250.493.9111 to begin with a friendly and helpful conversation.